Protect Your Personal Finances - Consider the CARD Act of 2009

On May 22, 2009, President Obama signed the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act into law, which addresses some of the credit card related concerns of consumer advocates and offers a variety of protections for credit card users. In addition to the new regulations relating to interest rates, the CARD act also has made increased transparency in the area of terms and conditions law. nnWhile there are some that believe that the changes that the CARD Act will bring when it comes into full effect in February 2010 do not go far enough in the protection of the consumer, the changes that did survive political wrangling to become law do, in addition to providing significant consumer protections, offer important guidelines that can be used to protect personal finances. The protections that made it into law address credit card and personal finance issues that can be problematic for many, contributing to overwhelming credit card debt and leaving people financially stressed and desperate to eliminate credit card debt. nn"An informed client is a financially secure client," said certified credit counselor Ernesto Aguilar, as quoted in a May 22, 2009, in an article published in the Brownsville Herald. "What we see when people come in is a great, great lack of knowledge on the part of the client on the terms, conditions and obligations of their credit card agreements." According to the article, “the new law puts emphasis on the elimination of "confusing terms and conditions" and requires the use of simple language.” nnBeing an informed consumer is one of the most important things a person can do to protect themselves financially and to improve their personal finances. Always read everything, including the fine print, before entering into a credit agreement. Run the numbers, calculate the cost of credit in terms of interest and fees. Ask questions if there is language that is not clear, and keep asking questions until you understand everything about the terms and conditions. If the person you are dealing with is impatient or unwilling to help you to understand terms and conditions, perhaps that is not the right credit opportunity for you. nnAnother feature of the CARD Act is that, when the new laws take effect, those under 21 years of age will no longer be able to get credit cards “unless they can prove they can make payments or get a parent or guardian to co-sign,” according to a May 27, 2009, article in USA Today. The article also noted “eighty-four percent of undergraduates had a credit card last year, according to a study by student lender Sallie Mae.” Yet, of those with credit cards, “only 17% of students surveyed said they regularly paid off their monthly balances.”nnThat would be a good guideline for adults to follow as well – not getting credit cards unless they can prove to themselves that they can make payments, and not only if everything goes perfectly smooth in terms of their income and expected monthly expenditures. Americans carry a pretty hefty consumer debt burden, and according to a May 8, 2009, CardTrak.com article, revolving credit, which is mostly credit card debt, was $945.9 billion in March 2009. And, in many instances, that debt is taken on not for essentials, but rather for nonessential consumer goods, things that would have been much less expensive had they been saved up for, rather than put on credit, adding interest and fees to their cost.nnOn May 27, 2009, the Wall Street Journal reported that “the annualized charge-off rate, measuring defaults as a percentage of loans outstanding, was at a record high for the fifth consecutive month, at 9.97%. This is the first time in the 20-year history of Moody's Credit Card Index that the rate approached double digits.” Some have pointed out that one of the reasons that those carrying credit card debt find themselves buried so deep that they stumble into delinquency and default is the relative impunity credit card lenders have to raise interest rates, even retroactively. “Credit card holders by the tens of millions are being ripped off by the abuses of credit card companies that raise interest rates on balances retroactively, that charge interest on money that you pay on time,” said Senator Carl Levin, as quoted in a May 25, 2009, WWMT.com news report. The CARD Act changes that. Such behavior on the part of credit card lenders will no longer be legal.nnWith the CARD Act, being an informed consumer will be easier, and mistakes will cost the consumer less. However, it should be – no, it needs to be – noted that often such so-called abuses by credit card companies could have been avoided by the consumer simply by living up to the basic responsibilities that everyone seeking or using credit have. Among these are being an informed consumer and understanding the terms of credit agreements entered, having a solid repayment plan, and weighing the merit of the debt that one chooses to take on.